Arnold Kling  

Revealed Preference vs. Happiness

Still More on Immigration... Housing Bubble Revisited...

Will Wilkinson writes,

The neuroscience shows that satisfaction of the highest ranked preference does not imply the greatest hedonic satisfaction. It does not imply any hedonic satisfaction. Take a look at this paper, “Parsing Reward,” [pdf] by Kent Berridge and Terry Robinson. They report that “wanting” and “liking” have “are in fact dissociable and have different neural substrates.” Roughly, the dopamine system is more about wanting–”incentive salience”–and liking or hedonic satisfaction has more to do with opioids.

Roughly speaking, economics shows how resources can be used most efficiently to satisfy wants. It does not connect satisfying wants with hedonic satisfaction, or happiness.

UPDATE: Also related to this topic is the latest Michael Munger essay on how people mis-calculate opportunity cost.

One way to view this is as a crisis for economics, because it does not connect to hedonic satisfaction. Instead, I view it as an opportunity for the self-help industry, to teach people how to achieve greater hedonic satisfaction by better aligning their wants to what makes them happy.

I am perfectly content with economics that describes how people satisfy wants, without getting into the issue of whether satisfying wants in turn makes people happy. Hence, my position is that happiness research belongs on the self-help shelf, not the economics shelf.

In the March, 2006 American Economic Review, which has an unusually large number of articles that interested me, Daniel McFadden writes concerning Medicare Part D and behavioral economics,

leaving the large block of uninformed consumers to "sink or swim", and relying on their self-interest to achieve satisfactory outcomes is clearly unrealistic. I endorse Thaler and Sunstein’s (2003) libertarian paternalism.

(note--the version I quoted differs slightly from the printed version)

What McFadden means by libertarian paternalism is that markets can satisfy wants, but people need to be taught what to want.

McFadden views teaching people what to want as an issue of market design, so that economists and policymakers should worry about it. I view teaching people what to want as a worthwhile project, but I would keep economists humble and policymakers out of it.

For economists, it is usually not our comparative advantage to second-guess consumer choice. I think we have something useful to say about choice under uncertainty and about rational discounting of the future. But beyond that, if there is to be a "science of happiness," I am willing to let someone else be the scientist.

For policymakers, trying to second-guess consumer choice is just another excuse for mischief. The disconnect between the government's actions and individual satisfaction is likely to be as large or larger than the disconnect between an individual's wants and that individual's satisfaction.

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The author at Asymmetrical Information in a related article titled Libertarian paternalism writes:
    Arnold Kling comments on Daniel McFadden's thoughts regarding behavioral economics and Medicare Part D.In the March, 2006 American Economic Review, which has an unusually large number of articles that interested me, Daniel McFadden writes concerning Me... [Tracked on April 4, 2006 7:32 AM]
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Alcibiades writes:

The conclusion that I have drawn from happiness research (and introspection), whereby "wanting" and "liking" turn out to be two very different things, and whereby a fancy new car satisfies but for a week or two, combined with my libertarianism/utilitarianism, is that we ought to devote all our dopamine-driven entrepreneurial "drive" not at making cheaper Rearden Steel, which will only help people momentarily, superficially; but that we ought to be using all our resources to search for pharmacological/gene-based therapies to increase our hedonic setpoint permanently, as opposed to those snarky drugs of abuse with their nasty negative feedback effects. Such a drug will beat chocolate milkshakes and heroin a hundredfold. This, in concert with our (still underfunded, stillunderexposed) attempts to increase maximum lifespan independent of the curing of specific average-lifespan-affecting ailments. The true solution to the utilitarian problem: increasing pure pleasure, and increasing maximum lifespan through manipulating just what we are. I don't know why other libertarians aren't on this bandwagon as well.

Thomas B writes:

So wants and happiness are unconnected.

What if I want to be happy?

Or is that an unusual desire?

Scott Scheule writes:

I await Dr. Caplan's response.

Adil Çiftçi writes:

I would like to appreciate Micheal makes opportunity cost more clear. Traditional opportunity cost approach begins to change and new horizons on micro theory is analyzed.

knzn writes:

Of course people want to be happy. The problem is that this is only one among many wants. If people were perfectly rational, they would recognize that their other wants are merely distracting temptations, and they would single-mindedly pursue happiness. But this research appears to indicate that people are fundamentally irrational (though perhaps they could be taught to be rational – undergoing a sort of psychoneuroeconomic therapy).

It pretty much blows normative economics to smithereens. I would suggest rebuilding normative economics on a negative foundation. Instead of “the most good for the most people”, pursue “the least harm to the fewest people.” Markets are good not because markets allow people to choose what is best for themselves (which they won’t do even if they can) but because markets prevent the accumulation of power and thereby prevent individuals from imposing their wants on others. (I’m guessing that ones own wants are typically more conducive to ones own happiness than are the wants of others, though I can think of examples where this might not be true.)

rvman writes:

If people were perfectly rational, they would recognize that their other wants are merely distracting temptations...


Yup, survival, security, kids, marriage, accomplishment - these are just distracting temptations. Ignore 'em, and focus on your hedonism.

The paradox of happiness is that research shows that those who are happiest are those who do not pursue it, instead finding it in whatever it is they get in the course of life.

"Happiness" appears to be a natural state, with each of us having a typical level to which we return after each change in situation. We need constant, upward boosts in situation to maintain above-typical happiness, much like an addict needs larger and larger hits to get the same high.

knzn writes:

rvman: “those who are happiest are those who do not pursue it” There’s an identification problem here. The most reasonable interpretation of this correlation, it seems to me, is that the causation runs from happiness to pursuit. That is, people who are already happy don’t need to pursue happiness. This doesn’t imply that the pursuit of happiness is futile, only that it is not successful enough to outweigh differences in endowment. (And I suspect that most people who pursue happiness don’t do a very good job of pursuing it. This doesn’t mean they shouldn’t pursue it; only that they should become better informed about how to pursue it effectively.)

As for “survival, security, kids, marriage, accomplishment,” I really do think these are distracting temptations – except to the extent that they contribute to happiness (which may be not at all). They sound like good goals, but they seldom work out as well as people hope (and this is just what your last paragraph implies). Better, perhaps, to go to Tibet and become a monk.

conchis writes:

So your (Arnold's) argument against happiness research now seems to be: (1) that economists aren't likely to be very good at it; and (2) that it's likely to be misused to argue for unjustified government internvention.

There's certainly a degree to which (1) is true, but I think you overplay it. It's certainly nothing that couldn't be remedied by inter-disciplinary collaboration. In any event, there are areas within happiness reasearch where economists seem to be proving particularly useful:

(a) Econometric technique: in many cases economists are more used to dealing with non-experimental evidence than psychologists, and this can be very useful. (The recent, and crucial development of a fixed effects ordered probit estimator springs to mind.)

(b) When examining the effect of economic phenomena, a more solid theoretical understanding of these phenomena can't help but be useful. As a simplistic example, thinking to distinguish the effects of income, consumption and wealth.

On (2) I'd have to agree that the potential is there, but I don't think this is decisive for a number of reasons:

(a) Happiness research can also point to libertiarian conclusions. Will pointed a while back to a study showing that size of goverment appeared to correlated negatively with happiness. I'm personally sceptical of cross-country happiness studies, but I'd be very interested in looking at how changes in regulation affect people's lives, independently of monetary impact. I'm pretty sure you'd find a negative effect for much of it.

(b) Happiness research can also be useful in setting governmental priorities. One consistent finding is that unemployment matters a lot (independently of it's effect on income). And there are some really interesting dynamics around movements in and out of work, that have real implications for how we prioritise and deal with unemployment. There's also some interesting work been done around the hedonic cost of inflation. (Note also that these are two areas where revealed preferences may not be all that much use, because people don't always make the choice to be unemployed, and individuals (at least those who aren't central bankers) don't consciously try to choose a particular level of inflation.)

(c) In any event, I'd still rather have the argument than prejudge it. (And given that the interventionists are going to carry on regardless, might be worthwhile having some sceptics in on the game too.)

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